Employee Was Not Working as Independent Contractor During ‘OT’ Assignments
An employer’s argument that the plaintiff in an overtime lawsuit, a former employee and security guard, performed his “overtime” work as an independent contractor, rather than as an employee, failed according to a federal district court in New York, which determined that the employer exercised control over the employee during those assignments and that the work done by the employee at those job sites was integral to the employer’s primary business. Moreover, the president and owner of the company could be held liable as an employer under the FLSA and New York Labor Law, the court concluded. The parties’ cross motions for summary judgment were granted in part and denied in part.
The employer, a security company that staffed unarmed security guards for clients, provided services to both public construction projects and private sites. The company president was also its owner and he had authority to set compensation and to hire and fire employees. He also had control over the company bank account, signed tax returns, and signed the employees’ paychecks. The plaintiff worked for the employer for two and a half years. During that time, he worked up to 40 hours each week at public construction projects for New York City’s School Construction Authority (“SCA sites”) and was paid on an hourly basis. His hourly wages varied and he averred that the employer agreed to pay him at prevailing wage rates. He received his pay bi-weekly from a payroll vendor (which accounted for no more than 80 hours per pay period) and received a W-2 form each year for that work.
20 hours on top. However, he also worked up to 20 additional hours each week at other sites, usually non-SCA sites. For that work, he was paid outside of normal payroll and without statutory deductions. For that work, he was issued an IRS Form 1099 at the instruction of the company president. Unlike his other work, for which he filled out daily sign-out logs, for this work he signed office time sheets that did not list the applicable prevailing wage rate. He did not receive overtime pay for these hours. Although the employer averred that it had a policy prohibiting overtime work, the employee maintained he was required to work those additional hours. The employee filed suit against the employer in 2012, alleging violations of the FLSA, New York Labor Law, and common law. Both he and the defendants moved for summary judgment.
Employee or independent contractor? In their respective motions, the employer and employee took opposing positions regarding whether, during those hours over 40 that the employee worked, he was acting as an employee or an independent contractor, a central question for his FLSA claim. Not surprisingly, the employer contended that the employee was acting as an independent contractor and the employee argued that his work was done as a non-exempt employee. Because the text of the FLSA did not supply a definition for “independent contractor,” the court applied the factors of the economic reality test to determine whether the plaintiff was acting as an employee or an independent contractor when working at the non-SCA sites. First, it concluded, the record showed that the employer “exercised a substantial degree of control over” the employee at those sites. The employee was required to fill out, sign, and submit timesheets for the work in order to be paid and his hours were controlled by the employer. The employer’s operations manager assigned him to work sites and set his work hours and the manager’s control was attributable to the employer. Second, the employee did not have an opportunity for profit or loss or to invest in the employer’s business with respect to those jobs. The employer negotiated the contracts and paid the guards at different rates according to the job site. It also purchased the uniforms the guards wore at those locations (and other SCA sites).
Indisputably integral work. The third factor, independent skill or initiative needed, also weighed in favor of an employment relationship, the court concluded, because the work involved did not require “specialized skills or a high degree of independent initiative.” Nor was the work of a transient nature, the court noted, which was another factor that weighed in favor of an employment relationship. Finally, the court explained, the work the employee performed was indisputably integral to the employer’s primary business and weighed in favor of an employment relationship. Thus, under the “economic reality” test, it was clear to the court that an employer-employee relationship existed with regard to the employee’s duties at those sites and, as a matter of law, the plaintiff was acting as an employee “during the entirety of his working relationship with” the employer.
Owner/president was “employer.” The parties also disputed whether the president, also the sole owner, could be held liable as an employer under the FLSA. The court determined that, as a matter of law, he could. The record showed that he had authority to set compensation, to sign tax returns, to access and make purchases from the bank account, and to hire and fire employees. In fact, he was the one who fired the plaintiff. Moreover, it was clear from his testimony and other evidence that he exercised control over work schedules and conditions. He testified that he did not let employees work more than 40 hours in a week and that when he learned that the plaintiff was doing so, he instructed another employee to issue him a Form 1099 for that work. He also set the pay rate and amounts and signed the pay checks. Although the record did not set forth whether he “maintained employment records,” the other factors outlined in the Second Circuit’s decision in Carter v. Dutchess Community College, 101 LC ¶34,540, “unequivocally establish” that he “exercised sufficient operational control,” justifying a grant of summary judgment in the employee’s favor on this issue.
“Enterprise coverage.” However, genuine issues of material fact existed regarding “enterprise coverage” under the FLSA (the court determined that the employee did not qualify for individual coverage). The employer did not dispute that it had an annual gross business volume of $500,000 or more. However, it maintained that employees did not handle items or goods that were produced outside of the state. It also argued that the uniforms the employees wore were bought and manufactured in New York. In turn, the employee presented evidence that the uniforms were not purchased or manufactured in New York and, therefore, the court concluded that a genuine dispute existed regarding their provenance. The employee also pointed to bank transactions indicating out-of-state purchases that were made, which presented another genuine dispute of material fact.
Timeliness and willful violation. The parties also cross-moved with regard to the applicable statute of limitations on the FLSA claim. The employer contended the claim was untimely and the employee contended that it was timely because the employer had willfully violated the FLSA. However, the court explained, the open question regarding whether the employer was covered under the FLSA also presented a dispute with regards to whether the employer’s actions were willful. A reasonable jury might find that the employer’s conduct was willful, in light of the owner’s statements that he sought to avoid paying overtime by prohibiting guards from working more than 40 hours per week, while he was “simultaneously deploying” the plaintiff to work as an “independent contractor.”
New York Labor Law claims. The parties also filed cross motions with regard to the employee’s New York Labor Law claims. Although the court agreed with the employer that the employee had failed to exhaust his administrative remedies as to one of his counts under that law, it noted that with regard to another count, brought pursuant to the New York Minimum Wage Act, NLL Sec. 650 et seq., he was not required to exhaust administrative remedies. Under that Act, which had a broader definition of “employer” than what was found in the FLSA, the court was “easily” able to determine that the defendant was an employer under the New York Minimum Wage Act. It also determined that the president could be held individually liable. And, because there was no dispute of fact regarding the employer’s failure to pay the employee overtime at the rate of one and one half times his regular wage, the court granted summary judgment in the employee’s favor on that claim.
The employee’s common law claims, to the extent that they could go forward, could only do so with regard to unpaid straight time wages. To the extent the claims sought payment for overtime wages, they overlapped with the FLSA and NYLL claims. That said, the court determined that the breach of contract claim could not proceed, even as restricted to straight time wages. Because it was based on prevailing wage rates, he either had to satisfy the exhaustion requirement or show that he was a third-party beneficiary. He could do neither. However, both parties’ summary judgment motions were denied with regard to the claim of unjust enrichment because of disputes regarding the rate at which the employee should have been paid. (Ethelberth v Choice Security Co., SDNY, 165 LC ¶36,319.)
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Reposted with permission from Wolters Kluwer.
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